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VALUING SPECTRUM
5G Workshop, Washington D.C.
Michael Honig Department of EECS
Northwestern University
December 2016
Based on a paper with Tom Hazlett.
Spectrum “Crunch” P
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Spectrum Policy is Important
¨ Gross inefficiencies still exist with large opportunity costs.
¨ Spectrum assignments influence technology development ¤ Licensed, unlicensed, secondary access, mmWave
¨ Re-allocations/assignments incur very large transaction costs.
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December 2016
FCC Initiatives
¨ Incentive auctions (repurposing TV spectrum) ¨ TV white space ¨ Millimeter wave bands ¨ 3.5 GHz band
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Very high transaction costs. How can we reduce these?
How to define access rights?
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An Economist’s Proposal
Ronald Coase, 1991 Nobel Laureate in Economics
Introduce spectrum property rights, sell to highest bidders, do not restrict use.
R. Coase, “The federal communications commission,” J. Law and Economics, pp. 1–40, 1959.
Coase’s “Theorem”: In the absence of transaction costs, spectrum owners will trade rights so that the outcome allocates spectrum to best use.
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December 2016
An Economist’s Proposal
Ronald Coase, 1991 Nobel Laureate in Economics
R. Coase, “The federal communications commission,” J. Law and Economics, pp. 1–40, 1959.
Coase’s “Theorem”: In the absence of transaction costs, spectrum owners will trade rights so that the outcome allocates spectrum to best use.
Role of government should be to minimize transaction costs.
Introduce spectrum property rights, sell to highest bidders, do not restrict use.
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December 2016
An Economist’s Proposal
Ronald Coase, 1991 Nobel Laureate in Economics
R. Coase, “The federal communications commission,” J. Law and Economics, pp. 1–40, 1959.
Spectrum auctions finally introduced in the 1990s. Restrictions on use remain.
Coase’s “Theorem”: In the absence of transaction costs, spectrum owners will trade rights so that the outcome allocates spectrum to best use.
Introduce spectrum property rights, sell to highest bidders, do not restrict use.
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December 2016
Liberal License
¨ Licensed for exclusive use ¨ Liberal use rules
¤ Does not dictate technology (cellular, WiFi commons, satellite,…)
¨ Allows spectrum trading ¤ Can re-allocate spectrum on large scales. ¤ Can define/trade spectrum contracts on finer scales
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December 2016
Unlicensed Spectrum (Commons)
¨ Open access ¨ Requires etiquette rules
for sharing
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¨ Spectrum owned by government ¨ Etiquette rules part of industry standard (802.11)
December 2016
Licensed versus Unlicensed
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Cellular Service Providers
Software (apps) developers, Comcast, AT&T?
More licensed spectrum!
More unlicensed spectrum!
December 2016
More Licensed Spectrum
¨ Encourages investment (cellular), efficient use ¨ Does not constrain technology,
rules for spectrum sharing, business models ¨ Facilitates trading / Coasean bargaining
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[Hazlett, 2010]
More Unlicensed Spectrum
5G Workshop, Washington D.C.
¨ Reduces barriers to entry ¨ Encourages innovation (WiFi, Bluetooth, etc.) ¨ Has created as much value as licensed
[Thanki, 2009] [Milgrom, Levin, Eilat, 2011] [Benkler, 2012]
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Misconceptions
¨ Open access requires unlicensed allocations. ¨ The value of spectrum can be estimated as the
value of the services it supports. ¨ Free open access to scarce spectrum is economically
efficient.
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December 2016
Misconceptions
¨ Open access requires unlicensed allocations. ¨ The value of spectrum can be estimated as the
value of the services it supports. ¨ Free open access to scarce spectrum is economically
efficient.
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December 2016
Licensed Open Access
¨ Licensee sets rules, polices band ¨ Open access is a business model
¤ Admission fee ¤ Revenue from selling approved equipment
¨ Business model, technology can evolve without appeal to regulatory authority
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December 2016
Misconceptions
¨ Open access requires unlicensed allocations. ¨ The value of spectrum can be estimated as the
value of the services it supports. ¨ Free open access to scarce spectrum is economically
efficient.
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December 2016
Spectrum versus Services
¨ The value of spectrum is not the same as the value of the services it supports.
¨ Example: the value of broadcast TV spectrum is not the same as the total sales of TV equipment.
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Valuing Broadcast TV Spectrum
¨ Opportunity cost: More value may be created by other services (e.g., cellular).
¨ Substitution possibilities: Broadcast TV services can be provided by other means (cable, cellular, WiFi).
¨ Marginal value: How much value is created by a marginal increase in spectrum?
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How to assess spectrum value?
¨ The value of an increment of spectrum ΔS is the sum of three components: + Marginal value of services enabled by ΔS - Marginal value of services foreclosed by ΔS - Administrative costs associated with the allocation
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December 2016
The Regulator’s Dilemma
¨ How to compare social values of unlicensed versus licensed?
¨ Solicit estimates ¨ Issues:
¤ Rent seeking ¤ Focus on total value of services,
ignoring opportunity/substitution/administrative costs
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Spectrum Value Estimates ($B)
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December 2016
Transaction Costs
¨ Licensed: normal market frictions (negotiations, imperfect information)
¨ Unlicensed/open access: restriction of access rights requires an appeal to regulatory authority
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December 2016
Transaction Costs: Licensed Ex.
¨ Licensed: normal market frictions (negotiations, imperfect information)
¨ Licenses for Media Flow bought by Qualcomm (2007), sold to AT&T (2011).
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December 2016
Transaction Costs: TV White Spaces
¨ FCC announced intentions in Dec. 2002 ¨ Rules finalized in 2010 ¨ Currently 735 fixed wireless radios registered ¨ Fragmented access rights blocks reconfiguration –
needs regulatory appeal ¨ Another example: U-PCS (1915-20 MHz) allocated
in 1993, remained idle for 20 years.
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December 2016
Misconceptions
¨ Open access requires unlicensed allocations. ¨ The value of spectrum can be estimated as the
value of the services it supports. ¨ Free open access to scarce spectrum is economically
efficient.
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December 2016
Free Open Access
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Free open access to scarce spectrum is economically inefficient.
Tragedy of the commons
Congestion in unlicensed bands è more unlicensed?
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December 2016
Let Open Access Compete…
5G Workshop, Washington D.C.
Congestion in unlicensed bands è more unlicensed?
Alternative uses: ¤ Cellular ¤ Satellite ¤ Government ¤ Backhaul ¤ …
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December 2016
Free Access and Congestion
¨ Availability of unlicensed spectrum encourages use by wide-area providers (AT&T, Comcast).
¨ Can lead to excessive congestion, loss in total welfare.
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T. Nguyen, H. Zhou, R. Berry, MH, R. Vohra, “The Cost of Free Spectrum”, to appear in Operations Research.
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December 2016
Unlicensed Controversies
¨ 5.9 GHz band: ¤ Currently set aside for vehicular communications ¤ Proposal to reallocate to WiFi
¨ LTE-U, License-Assisted Access ¤ SPs will leverage licensed bands to make more efficient
use of unlicensed bands
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December 2016
The LAA Controversy
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Cellular Service Providers
WiFi Alliance
Leave us alone! You have to share!
December 2016
Market Solution
¨ Assign rights, allow spectrum to be traded among providers (LTE, WiFi)
¨ Would eliminate need for LTE-U/LAA. ¨ Bids for licenses plus WiFi offloads suggest current
allocations are lopsided towards unlicensed.
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December 2016
Spectrum Allocation in 5G
¨ Tradeoffs among: ¤ Density of small cells ¤ Density of WiFi access points ¤ Bandwidth assignments
5G Workshop, Washington D.C.
Network Optimization
traffic
prices Bandwidth allocations
Cell/WiFi density
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December 2016
Conclusions: Contention vs. Cooperation
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December 2016